Michael Froman and the revolving door

By Felix Salmon

December 11, 2009

Matt Taibbi, he's one of the most egregious examples -- up there with Bob Rubin, literally -- we've yet seen of the way the revolving door works between business and government generally, and between Citigroup and Treasury in particular.
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Michael Froman is one of those behind-the-scenes technocrats who never quite makes it into full public view. But according to Matt Taibbi, he’s one of the most egregious examples — up there with Bob Rubin, literally — we’ve yet seen of the way the revolving door works between business and government generally, and between Citigroup and Treasury in particular.

I’m not sure how much of this information is new, but a lot of it was new to me, especially the bit about Froman “leading the search for the president’s new economic team” — while he was still pulling down a multi-million-dollar salary at Citigroup, no less. Apologies for quoting at length:

Leading the search for the president’s new economic team was his close friend and Harvard Law classmate Michael Froman, a high-ranking executive at Citigroup. During the campaign, Froman had emerged as one of Obama’s biggest fundraisers, bundling $200,000 in contributions and introducing the candidate to a host of heavy hitters — chief among them his mentor Bob Rubin, the former co-chairman of Goldman Sachs who served as Treasury secretary under Bill Clinton. Froman had served as chief of staff to Rubin at Treasury, and had followed his boss when Rubin left the Clinton administration to serve as a senior counselor to Citigroup (a massive new financial conglomerate created by deregulatory moves pushed through by Rubin himself).

Incredibly, Froman did not resign from the bank when he went to work for Obama: He remained in the employ of Citigroup for two more months, even as he helped appoint the very people who would shape the future of his own firm. And to help him pick Obama’s economic team, Froman brought in none other than Jamie Rubin, a former Clinton diplomat who happens to be Bob Rubin’s son. At the time, Jamie’s dad was still earning roughly $15 million a year working for Citigroup, which was in the midst of a collapse brought on in part because Rubin had pushed the bank to invest heavily in mortgage-backed CDOs and other risky instruments…

On November 23rd, 2008, a deal is announced in which the government will bail out Rubin’s messes at Citigroup with a massive buffet of taxpayer-funded cash and guarantees… No Citi executives are replaced, and few restrictions are placed on their compensation. It’s the sweetheart deal of the century, putting generations of working-stiff taxpayers on the hook to pay off Bob Rubin’s fuck-up-rich tenure at Citi. “If you had any doubts at all about the primacy of Wall Street over Main Street,” former labor secretary Robert Reich declares when the bailout is announced, “your doubts should be laid to rest.”

It is bad enough that one of Bob Rubin’s former protégés from the Clinton years, the New York Fed chief Geithner, is intimately involved in the negotiations, which unsurprisingly leave the Federal Reserve massively exposed to future Citi losses. But the real stunner comes only hours after the bailout deal is struck, when the Obama transition team makes a cheerful announcement: Timothy Geithner is going to be Barack Obama’s Treasury secretary!

Geithner, in other words, is hired to head the U.S. Treasury by an executive from Citigroup — Michael Froman — before the ink is even dry on a massive government giveaway to Citigroup that Geithner himself was instrumental in delivering. In the annals of brazen political swindles, this one has to go in the all-time Fuck-the-Optics Hall of Fame.

Wall Street loved the Citi bailout and the Geithner nomination so much that the Dow immediately posted its biggest two-day jump since 1987, rising 11.8 percent. Citi shares jumped 58 percent in a single day, and JP Morgan Chase, Merrill Lynch and Morgan Stanley soared more than 20 percent, as Wall Street embraced the news that the government’s bailout generosity would not die with George W. Bush and Hank Paulson.

How much influence did Froman have over the appointment of Geithner as Treasury secretary? Geithner, who wanted to become Treasury secretary and who as New York Fed president was a central (if not the central) figure in orchestrating the massive Citigroup bailout just after the election, knew what Froman’s job was in the Obama transition team, and knew that Froman was a senior executive at Citigroup.

As Taibbi says, the optics are atrocious — especially when you combine all these decisions with the marginalization of the more anti-Wall-Street types among Obama’s economic advisors, and the elevation of people like Larry Summers and Rahm Emanuel who might not work for Wall Street for very long, but who make many millions of dollars doing so when they do.

My only wonder is that this Froman story has been kept so quiet for so long, given the importance of perception in politics. Still, I’d like to see it confirmed elsewhere — what’s Taibbi’s source for his assertion that Froman led the search for the new Treasury secretary? Has that been reported before?